The Beholden State and Its Potemkin Economic Recovery

So where am I today? Some mornings it takes me moment to recall, although I’m tempted to blame the second Talisker at the bar at closing last night for this morning’s fog. Oh, wait—that’s real fog out the window: I’m in San Francisco. Today is the northern California launch for the Manhattan Institute’s new collection of City Journal California articles entitled The Beholden State: California’s Lost Promise and How to Recapture It. I’ll be speaking on a panel at the City Club (it’s sold out, so don’t try for a last minute seat) along with the City Journal editors and authors Brian Anderson, Steve Malanga, and Ben Boychuk.

The book covers the entire coastline and interior of California’s multiple dysfunctionalities with many familiar writers (Victor Davis Hanson, William Voegeli, Joel Kotkin, etc), so there aren’t many original observations I can add. But they did leave me with one scrap to dilate: housing. Right now Gov. Jerry Brown is crowing that “California is back on track,” and that the economy is recovering. California still lags the country badly, though, and having grown up through several economic cycles in the state, I find the current economy is still lagging.

One reason for this can be seen in the chart below, which shows the cycle of single-family housing starts going back to the early 1960s. In each recession up to the early 1990s each recovery was marked by a surge in housing starts, usually approaching 300,000 at the peak. But then it changes in the late 1990s, and barely topped 200,000 starts in the middle of the housing bubble and during the boom of the late 1990s. And you can see that so far housing is still in the dumps, even thought the housing industry is recovering nicely elsewhere in the country.

There are a few secular reasons (as economists would say) for this change, but by far the most significant reason is the increasingly hostile regulatory climate toward single-family housing development, especially “smart growth” policies that disdain detached single-family homes, along with aggressive moves to place more and more land off limits to residential development.

In such a climate, you’re going to aggravate California’s increasing class divide between affluent citizens and low-income laborers (mostly Hispanic), with a shrinking middle class. That’s just how rich liberals in the state want things: it’s those grubby middle class people with their suburban lifestyles that clog up the roads for the Prius set.